American Express 2004 Annual Report Download - page 114

The Company granted 5.0 million, 5.3 million and 0.3
million restricted stock awards (RSAs) with a weighted
average grant date value of $50.33, $33.88 and $35.97
per share for 2004, 2003 and 2002, respectively. RSAs
granted in 2004 and 2003 generally vest ratably at 25
percent per year beginning with the first anniversary of
the grant date. RSAs granted prior to 2003 generally vest
four years from date of grant.
The components of the Company’s pretax stock-
based compensation expense, net of cancellations,
are as follows:
(Millions) 2004 2003 2002
Stock options $83 $37 $—
Restricted stock awards 134 85 40
Total $ 217 $ 122 $ 40
American Express Company Stock Fund
In addition to the Plans discussed above, the Company
also sponsors the American Express Incentive Savings
Plan (ISP), a 401(k) plan, under which purchases of the
Company’s common shares are made on behalf of partici-
pating U.S. employees. Under the terms of the ISP,
employees have the option of investing in the American
Express Company Stock Fund through accumulated pay-
roll deductions. In addition, at least quarterly the Com-
pany makes automatic cash contributions equal to 1% per
annum of a qualifying employee’s base salary. Such con-
tributions are invested automatically in the American
Express Company Stock Fund, which invests primarily in
the Company’s common stock and, effective August 2,
2004, can be redirected at any time into other ISP invest-
ment options. Prior to August 2, 2004, these contributions
could not be redirected by the employee until the
employee reached 55 years of age. Compensation
expense related to the Company’s contribution was $19
million, $19 million and $20 million in 2004, 2003 and
2002, respectively, which is included in defined contribu-
tion plan expense as further discussed in Note 16. The ISP
held 22 million and 23 million shares of American Express
Common Stock at December 31, 2004 and 2003, respec-
tively, beneficially for employees.
Note 16 RETIREMENT PLANS
Defined Benefit Pension Plans
The Company sponsors the American Express Retire-
ment Plan (the Plan), a noncontributory defined benefit
plan which is a qualified plan under the Employee Retire-
ment Income Security Act of 1974, as amended (ERISA),
under which the cost of retirement benefits for eligible
employees in the United States is measured by length of
service, compensation and other factors and is currently
being funded through a trust. Funding of retirement costs
for the Plan complies with the applicable minimum fund-
ing requirements specified by ERISA. The Plan is a cash
balance plan and employees’ accrued benefits are based
on notional account balances, which are maintained for
each individual. Each pay period these balances are cred-
ited with an amount equal to a percentage, determined
by an employee’s age plus service, of compensation as
defined by the Plan (which includes, but is not limited to,
base pay, certain incentive pay and commissions, shift
differential, overtime and transition pay). Employees’ bal-
ances are also credited daily with a fixed rate of interest
that is updated each January 1 and is based on the average
of the daily five-year U.S. Treasury Note yields for the pre-
vious October 1 through November 30, with a minimum
crediting rate of 5%. Employees have the option to
receive annuity payments or a lump sum payout at vested
termination or retirement.
In addition, the Company sponsors an unfunded non-
qualified Supplemental Retirement Plan (the SRP) for
certain highly compensated employees to replace the
benefit that cannot be provided by the Plan due to
Internal Revenue Service limits. The SRP generally par-
allels the Plan but offers different payment options.
Most employees outside the United States are covered
by local retirement plans, some of which are funded,
while other employees receive payments at the time of
retirement or termination under applicable labor laws
or agreements.
The Company measures the obligations and related
asset values for its pension and other postretirement
benefit plans as of September 30th.
The components of the net periodic pension cost for all
defined benefit plans accounted for under SFAS No. 87,
“Employers’ Accounting for Pensions,” are as follows:
(Millions) 2004 2003 2002
Service cost $ 136 $ 115 $ 106
Interest cost 128 118 112
Expected return on
plan assets (164) (146) (127)
Amortization of:
Prior service cost (6) (8) (9)
Transition obligation (asset) 1(2) (1)
Recognized net
actuarial loss 19 18 6
Settlement/curtailment loss 410 12
Net periodic pension
benefit cost $ 118 $ 105 $ 99
AXP
AR.04
112
Notes to Consolidated Financial Statements